Recently, we saw JetBlue Airways and United Airlines announce plans to launch a partnership, which will be known as “Blue Sky.” This partnership includes frequent flyer reciprocity, potential slot swaps, and more. The idea is that it’s supposed to start slow, and grow over time.
Well, ahead of this partnership taking flight, one competitor has filed an objection, raising concerns about what this partnership will mean for the competitive landscape.
Spirit demands investigation of United & JetBlue partnership
Spirit has filed a complaint with the Department of Transportation (DOT), demanding an extension of the review period for the JetBlue and United partnership, and requesting that all details be made available for public review, with a period for public comment.
Spirit points out how when the American and JetBlue Northeast Alliance was being reviewed in 2021, United filed comments strongly supporting public access to the details of the agreement, and allowing a period for public comments. So Spirit believes the same should apply here.
Spirit acknowledges that limited information has been released about the United and JetBlue “Blue Sky” partnership, but fears that it raises serious competition and public interest questions, similar to the Northeast Alliance. The company goes on to claim that based on what is publicly available, “implementation of these agreements appear to constitute an anticompetitive unfair method of competition that must be prohibited.”
Here’s what the filing goes on to claim:
At a high level, the proposed “Blue Sky” link-up between United and JetBlue creates the same anti-competitive incentives present in the NEA. JetBlue, enticed by the benefit to its customers of United’s far larger global network, will become a de facto vassal of United. Despite a rote assertion that the carriers will “continue to manage and price their networks independently,” JetBlue’s network decisions, on both overlap and non-overlap routes, will certainly be affected by United’s wishes and a “combined” approach to capacity management. JetBlue will need to purchase more expensive United miles to offer the United connectivity (e.g., on United’s international long-haul routes, as well as to large parts of the domestic US not served by JetBlue) to JetBlue loyalty program members. That incremental cost must necessarily be covered by higher JetBlue fares.
Finally, the tie-up also promises coordination on high-value corporate accounts and, more importantly, helps perpetuate the unchanging lack of access in both New York area and Boston airports to new entrants and limited incumbents offering competitive prices to the public. In short, this anti-competitive tie-up involving a dominant legacy carrier will neutralize the competitive benefit of an existing low-fare competitor (JetBlue), will raise fares, and will tend to weaken other value airlines, such as Spirit and others, by siphoning off customers attracted by access to the United loyalty program.
Does Spirit have a point about this partnership?
It’s pretty standard for airlines to object to partnerships between other carriers, and to try and increase regulatory scrutiny. Of course they raise these objections when it’s to their advantage, and try to brush off any concerns when it favors them.
Does Spirit have a point? Yes and no, I’d say. I don’t think there’s much merit to the main part of Spirit’s complaint, which is that the frequent flyer partnership is anticompetitive, since it means JetBlue will have to buy United miles, and therefore increase fares.
That’s pretty baseless, and with that logic, any and all loyalty collaborations are anticompetitive. I’d argue these frequent flyer agreements largely benefit consumers, by providing more options.
Now, the slot swap that we may see some time down the road (in 2027 and beyond) is the more concerning regulatory issue. The idea is that this will allow United to return to New York Kennedy Airport (JFK). We don’t yet have details on what exactly that will entail, but it’s totally fair for regulators to investigate that closely. I just don’t think we’re there yet.
One thing Spirit is absolutely right about is that these kinds of partnerships weaken the unaligned value carriers that don’t have partnerships. That’s absolutely true, but I’m not sure there’s a solution there, other than “if you can’t beat ’em, join ’em.”
There’s no denying that the economics of the US airline industry have evolved in a significant way over the years. At this point, airfare is essentially subsidized by lucrative co-brand credit card agreements. But the reason that profits are so concentrated among a few airlines is because scale is needed in order to make loyalty programs lucrative.
This has made it virtually impossible for smaller, low cost carriers to survive, since they can’t rely on the billions in profits that the legacy airlines earn with their loyalty programs.
But what’s the solution there, really? Should we stop letting credit card companies subsidize airfare, and just pay more? No, I don’t think that helps us.
If you ask me, we need to stop being so opposed to industry consolidation. The goal shouldn’t be to have as many airlines in business as possible. Instead, the goal needs to be to have as much overall industry capacity as possible with the major carriers, which are able to leverage loyalty programs to turn a profit. Right now we have the “big four” (American, Delta, Southwest, and United), and we’d benefit from there being additional consolidation that gets us to the “big six” or so.
As consumers, we can’t have it both ways — we can’t have our airfare both subsidized by credit card agreements, while also not wanting anything with low cost carriers to change. They’re hemorrhaging money for a reason, and no one has a good solution that doesn’t involve consolidation, other than “do better.”
Bottom line
Spirit is objecting to the JetBlue and United partnership, claiming it’s anticompetitive. To start, Spirit is demanding more public transparency about what exactly this partnership will entail, plus a period for public comment.
Spirit argues that a loyalty collaboration is anticompetitive, which I don’t agree with. The airline also argues that the potential slot swap could be anticompetitive, and I can see merit to that claim, or at least, to it being investigated more closely.
The bigger issue is that being a small, independent carrier in the United States just really isn’t viable anymore, and so many people are in denial about that. Spirit is right that these kinds of partnerships harm low cost carriers, but that’s because they need to be find ways to scale, and not because we should artificially prevent other partnerships (especially when one of those airlines is also struggling).
What do you make of Spirit’s objections to the United and JetBlue partnership?
